Will you be comfortable with comfortable?

It could be fair to say that many Australians aspire to at least a "comfortable" retirement. Do you know what annual income would provide "comfort" by your standards? Do you know how much that means you’ll need in retirement?

To enjoy a "comfortable" retirement, singles at retirement (aged 65) will need $545,000 in savings, to generate a yearly income of $43,317. Similarly, couples at retirement will need $640,000 to generate $60,977 a year. The figures in both cases assume that the retiree(s) own their own home, and do not pay rent or make mortgage payments. That's according to the ASFA Retirement Standard for the December quarter 2018.

If the retirement lump sum doesn’t work for you

BT’s Technical & Strategy Specialist Tim Howard acknowledges that ASFA’s lump sum figure is a great start, but ultimately, it’s about the individual and the lifestyle they want to lead.

"A comfortable retirement means different things to different people," Tim says. "While a comfortable retirement might mean regular travel to some retirees, others may view having the means and freedom to spend time with their family as their definition of a comfortable retirement"

It’s about defining the kind of lifestyle you’ll want and what kind of income that might require annually, combined with your expectation for how many years you’ll live. That can then be converted to a dollar amount.

Reap the benefits of compound interest

Start contributing when you're young and you could reap the rewards of compound interest.

"Compound interest is one of the simplest and greatest financial concepts to understand, and I strongly suggest you adopt it in your financial life," says Tim. "By spending less than you earn and saving the rest, you allow the interest on the amount you save to earn interest on interest over time, year after year"

In theory, it should be easier to put extra money into super when you’re young. You’re likely to have fewer financial commitments (e.g. mortgages and children) and are less likely to have to leave the workforce to look after children.

“In reality, however, you’re more likely to direct your spare income to more enjoyable activities such as taking on the freedom to travel, go out with friends, seeing more places and do more things before you are tied down to the bigger commitments in life” says Tim.

Already 50 and not feeling "comfortable"? It’s never too late to get started

If you’re older and not where you want to be in the quest for a comfortable retirement, it’s not too late. Tim suggests four steps to take action:

Get yourself well educated around your choices and potential strategies, whether through material available from BT or in the marketplace. You might like to start by looking at the Retirement Income Calculator to see the potential impact that additional contributions could have on your super balance over time. A transition-to-retirement strategy for instance could also potentially enable you to put additional money into the tax-effective environment of superannuation1.

Look at your current lifestyle and see if there are any trade-offs you could make that allow some of today’s disposable income to be placed towards tomorrow’s savings.

Depending on what you can afford, personal advice from a financial adviser can benefit individuals. When considering your options, ensure you factor in the potential for a one-off piece of advice or ongoing relationship with the adviser, depending on your situation.

Think about your retirement not as just what you’ve got in your superannuation, but the value of all your assets which can help fund your lifestyle in retirement. Sure, super is crucial, and the retirement assets you build up in super are tax effective1 but they’re not the only assets you could be thinking about.

Time to get moving

Overall, Tim believes that Australians aren’t thinking all that hard about what is required to finance their retirement. He believes, what would be useful, is spending more time considering the way they want to lead their later years.

“Do you want the option to stop work if and when you need, make a change in your life or a change to help others such as your dependants or ageing parents? What would you need financially in order to have the choice to do these things?”

“While this might sound challenging at first, by having a plan and breaking things down into simple, achievable steps, targeting a comfortable retirement may not be as far off as you think” says Tim.

1. A 15% tax rate applies to earnings in superannuation funds. It also applies to pre-tax (concessional) contributions made to your superannuation, however higher income earners may also have an additional 15% tax rate applied. This is compared to your marginal tax rate. You can find out more at www.ato.gov.au.

How do you make sure your hard-earned retirement savings last? There are a range of steps before and after retiring you can take to make the most of your retirement income.

This article has been written by Tim Howard, Technical & Strategy Specialist, BT. BT is a part of Westpac Banking Corporation ABN 33 007 457 14 AFSL and Australian Credit Licence 233714 (Westpac). I Information in this publication is current as at 12 April 2019. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. To the maximum extent permitted by law, we intend by this notice to exclude liability for this third party material. Any tax considerations outlined in this publication are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of super investments can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser. Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.

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